It’s been a tough year for the Reserve Bank, berated by former senior staff, Treasurers, board members, sitting MPs and a barrage of commentators who’ve urged it to resist the black hole of zero interest rates.
While the government is popping the champagne over the latest house price surge, it’s been none too pleased about the unsettling effects of three interest rate cuts and talk of “quantitative easing” since the RBA started taking an axe to the cash rate in June.
Keeping interest rates on hold was bound to be a good option, then, especially given forecasts have had a habit of being quite wrong for a long time.
Rates will stay on hold at their record 0.75 per cent low at least until the board returns from a summer of reflection in February to reassess the outlook.
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The Reserve Bank governor Philip Lowe’s monthly interest rate update can be inscrutable reading. “The outlook for the global economy remains reasonable,” he said on Tuesday afternoon, a characterisation unlikely to shift any dial.
His reference to “long and variable lags” though probably contained more information, a way of saying the June interest rate cut hasn’t had its full effect yet, let alone the other two.
The Australian dollar and the government bond rate edged up after the 2.30pm announcement, reflecting a slight drop in the chance of a February cut.
Indeed, the drip feed of official data in the lead-up to the release of the third-quarter GDP figure on Wednesday suggests growth could be a little stronger than expected.
The governor said higher house prices and lower interest rates were boosting household spending, whose lacklustre performance has been the biggest weight on the economy this year.
By this time next year though, further rate cuts are highly likely. Even the ever-optimistic RBA has gone from pencilling in higher wage growth to expecting no change at all. “A further gradual lift in wages growth would be a welcome development,” Dr Lowe said. Without such a welcome development, the RBA won’t meet its inflation target.
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